Launch Partners

Tuesday, October 4, 2022

Launch Partners

Cagamas: Sustainability at its core

The Cagamas model: A global benchmark
Internationally recognized for its robust pioneering model, Cagamas, the National Mortgage Corporation of Malaysia, serves as a special vehicle to support the national home ownership agenda by supporting financial institutions with competitively priced funding from the capital markets. Cagamas plays a key role in promoting Islamic finance and developing the local capital markets through its regular bond and Sukuk issuances.

Cagamas primarily extends liquidity to financial institutions through its unique mortgage purchase mechanism, via its purchase with recourse product. The Cagamas model benefits both homebuyers and institutional investors and has been recognized by the World Bank as the most successful secondary mortgage liquidity facility undertaken by a secondary mortgage corporation.

Since its establishment in 1986, Cagamas has been an active issuer of corporate bonds and Sukuk to finance the purchase of housing loans and receivables from financial institutions, selected corporates and the public sector. It is rated ‘AAA’ by RAM Rating Services (RAM Ratings) and Malaysian Rating Corporation, and rated ‘A3’ by Moody’s Investors Service, in line with Malaysia’s sovereign rating.

Apart from the liquidity model, Cagamas has also undertaken mortgage securitization transactions as well as having built a successful mortgage guarantee model in its strive to promote homeownership.

Cagamas’s capital market contributions cannot be understated. Through the corporation, Malaysia became one of the first in the region to establish a secondary mortgage market. Cagamas also spearheaded the growth of the corporate bonds and Sukuk market, which was largely absent prior to Cagamas’s formation.

Today, Cagamas is Malaysia’s largest issuer of corporate debt instruments in terms of total issuance size. As at the end of 2020, it had supplied RM339.5 billion (US$81.93 billion)-worth of investment grade corporate bonds and Sukuk. Since its inception, Cagamas has cumulatively refinanced housing loans and house financing in the secondary market amounting to RM171.2 billion (US$41.31 billion), equivalent to two million houses in aggregate as at the end of October 2021.

Sustainability in DNA
With its mission to increase affordable housing for Malaysians from the low- and middle-income brackets, Cagamas’s operational model has always centered on sustainability. In January 2019, the corporation enhanced its sustainability core by launching its Sustainability Bond/Sukuk Framework (Cagamas Sustainability Issuance Framework, Framework).

A second opinion report was issued by RAM Sustainability to align the Framework with international standards. The Framework is an integral part of the broader Cagamas Group’s sustainability framework.

The Cagamas Sustainability Issuance Framework reaffirms and deepens Cagamas’s mission and raises awareness about the importance of sustainable development. It was formulated based on international best practices and supports four out of the 17 UN Sustainable Development Goals.

It outlines two social solutions: affordable housing and employment generation via SMEs; and five green solutions, namely renewable energy, energy efficiency, green buildings, low-carbon transportation, as well as sustainable water and wastewater management.

The framework consolidates important processes which embed sustainability into Cagamas’s DNA, and also allows it to anticipate and manage risks in a structured manner. It also bolsters transparency with regards to the corporation’s value creation as far as the society, environment and economy are concerned.

The framework guides Cagamas into the next chapter by embedding climate change mitigation and adaption attributes into its sustainability journey, as it continues to increase homeownership among Malaysians while supporting green and environmental-related initiatives, build sustainable developments and drive economic growth.

Investing in sustainability
Since the release of the Cagamas Sustainability Issuance Framework, Cagamas has made landmark offerings, raising the profile of the Malaysian capital markets, particularly within the Islamic finance sphere, and helping to place the country on the global map of sustainable finance. It is worth noting that the company’s first official foray into the sustainable fixed income space has been through an Islamic finance route, demonstrating its commitment to developing Shariah compliant financial instruments as well as the natural affinity between Islamic finance and sustainable finance.

Its groundbreaking debut took place in October 2020: the company successfully priced issuances of ASEAN Sustainability SRI [Sustainable and Responsible Investment] Sukuk and ASEAN Sustainability Bonds, raising a total of RM200 million (US$48.26
million). The issuances consist of a three-year RM100 million (US$24.13 million) SRI Sukuk and RM100 million multi-tenured sustainability bonds. The proceeds from the SRI Sukuk were used to fund specifically the purchase of eligible Islamic financing for affordable housing while the proceeds from the sustainability bonds were used to primarily fund the purchase of eligible noncarbon emitting industrial hire-purchase receivables for SMEs that contribute to environmental sustainability.

Assigned the highest social benefit rating of Tier 1 by RAM Sustainability under the Cagamas Sustainability Issuance Framework, the immense positive response to Cagamas’s maiden SRI offering underscores the latent demand, and commercial opportunity for ethical and sustainable Islamic financial instruments and bodes well for social finance.

Cagamas built upon this milestone with yet another SRI Sukuk offering less than a year later, which was again assigned a Tier 1 social benefit rating by RAM Sustainability. In August 2021, the company printed its first twin offerings of an ASEAN Sustainability SRI Sukuk and ASEAN Sustainability Bonds, totaling RM300 million (US$72.39 million) under the existing RM60 billion (US$14.48 billion) Islamic/Conventional Medium-Term Notes Programme, to mobilize funds to acquire Islamic financing and housing loans for affordable housing.

The corporation continued its sustainability momentum with a RM300 million (US$72.39 million) issuance, through a two-year ASEAN Sustainability Bonds offering in October 2021.

The continued success of the sustainability issuances strongly attest to the crucial role entities like Cagamas play to develop industry-led sustainable product offerings for the collective benefit of society. It also demonstrates how investors can efficiently deploy capital toward essential social needs without necessarily compromising on profits.

Moving forward
With the persistence of industrialization and the rise of unsustainable growth sweeping across the world at the cost of the environment and wider society, the private sector, governments as well as other stakeholders play an instrumental role in redefining business practices for the positive benefit of economies. The financial sector in particular holds substantial power to mobilize funding for good and to bring mainstream attention to this collective cause.

Cagamas’s inaugural ASEAN Sustainability SRI Sukuk RM100 million (US$24.13 million) under RM60 billion (US$14.48 billion) IMTN/CMTN program 26th October 2020
IssuerCagamas
StructureMurabahah
Purpose of issuanceTo fund specifically the purchase of eligible Islamic financing for affordable housing
Issue sizeRM100 million – ASEAN Sustainability SRI Sukuk
TenorThree years
Annual profit rate2.23%
Lead arrangerRHB Investment Bank
MethodPublic book-building
CurrencyMalaysian ringgit
Governing lawMalaysian law
Rating‘AAA/Stable’ by RAM Ratings ‘AAAIS’ by Malaysian Rating Corporation
TradabilityYes under Scripless Securities Trading System
Cagamas’s Multi-tenured ASEAN Sustainability Bonds totaling RM100 million RM100 million (US$24.13 million) under RM60 billion (US$14.48 billion) IMTN/CMTN program 27th October 2020
IssuerCagamas
Purpose of issuanceTo fund specifically the purchase of eligible non-carbon emitting industrial hire-purchase receivables for SMEs that contribute to environmental sustainability
Issue sizeRM100 million – ASEAN Sustainability Bond
TenorOne year | Two years | 2.5 years
Annual coupon rate2% | 2.13% | 2.18%
Lead arrangerCIMB Investment Bank
MethodPrivate placement
CurrencyMalaysian ringgit
Governing lawMalaysian law
Rating‘AAA/Stable’ by RAM Ratings ‘AAAIS’ by Malaysian Rating Corporation
TradabilityYes under Scripless Securities Trading System
Cagamas’s ASEAN Sustainability Bond RM300 million (US$72.39 million) under RM60 billion (US$14.48 billion) IMTN/CMTN program 29th October 2021
IssuerCagamas
Purpose of issuanceTo fund the purchase of eligible sustainability assets for affordable housing
Issue sizeRM300 million (US$72.39 million)
TenorTwo years
Annual coupon rate2.52%
Lead arrangerRHB Investment Bank
MethodPublic book-building
CurrencyMalaysian ringgit
Governing lawMalaysian law
Rating‘AAA/Stable’ by RAM Ratings ‘AAAIS’ by Malaysian Rating Corporation
TradabilityYes under Scripless Securities Trading System
Cagamas’s double issuances of ASEAN Sustainability SRI Sukuk and ASEAN Sustainability Bonds RM300 million (US$72.39 million) under RM60 billion (US$14.48 billion) IMTN/CMTN program 5th August 2021
IssuerCagamas
StructureMurabahah (for Islamic Issuance)
Purpose of issuanceTo fund the purchase of eligible Islamic financing and housing loans for affordable housing
Issue sizeRM100 million (US$24.13 million) – ASEAN Sustainability SRI Sukuk RM200 million (US$48.26 million) – ASEAN Sustainability Bonds
TenorThree years
Annual profit/coupon rate2.67%
Lead arrangerHong Leong Bank
MethodPrivate placement
CurrencyMalaysian ringgit
Governing lawMalaysian law
Rating‘AAA/Stable’ by RAM Ratings ‘AAAIS’ by Malaysian Rating Corporation
TradabilityYes under Scripless Securities Trading System

Cagamas is cognizant of its national developmental role in providing liquidity in the secondary mortgage market to ultimately support homeownership and its strategic role in promoting green and social impact financing to facilitate the domestic transition toward more inclusive and green economic activities. The company’s sustainability framework and ongoing efforts into sustainability issuances reflect its solid commitment toward a better world through ethical finance.

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